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NSC (National Savings Certificate)

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NSC (National Savings Certificate)
February 23, 2024

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The National Savings Certificate (NSC) is a Government of India savings scheme introduced on 8th May 1989. By investing in this scheme, you can grow your capital safely with fixed returns and also focus on tax savings. NSC is considered ideal for risk-averse investors looking for stable returns that are typically higher than fixed deposits.

If you are wondering whether investing in NSC certificates is good for your finances, this blog is for you. Keep reading to get a comprehensive idea of the National Savings Certificate scheme.

What Is the National Savings Certificate?

National Savings Certificate or NSC is a government-backed fixed-income investment scheme offered by India Post. This scheme attracts conservative investors making medium to small-scale investments for five years. The interest rates for NSC are pre-determined and reviewed/revised by the Ministry of Finances under the Government of India on a quarterly basis.

As this scheme is backed by the Indian Government, it is one of the safest investment options. You can open a National Savings Certificate by visiting any post office in India. The main goal of National Savings Certificate investment is to generate decent returns while saving tax.

By investing in an NSC certificate, you can also enjoy certain tax benefits and save money as per Section 80C of the Income Tax Act. Under this section, you can save up to Rs. 1.5 lakh in taxes in a financial year.

NSCs involve short-term investments that earn interest at fixed rates. After you start an NSC investment, it will start generating interest for that particular year. This will restrict you from making any further investments towards that particular NSC certificate. Another important thing to keep in mind is that premature withdrawal from an NSC is not allowed due to the 5 year lock-in period.

Nevertheless, you can invest in a new NSC certificate which you can get from any post office near your location. Also, it is important to note that the interest rate for NSC will always remain the same as during the time of purchase. The interest compounds annually but is paid at the end of the certificate's maturity.

NSC is one of the best investment plans that qualifies for tax benefits u/s 80C while providing low-risk returns.

Who Can Invest in NSC?

If you have a low-risk appetite and do not wish to invest in volatile options, you can choose to invest in NSC. These are a safe and short-term investment option that offers guaranteed returns along with capital protection.

To invest in the National Savings Certificate scheme, you must fulfil the following eligibility criteria.

  • You must be a resident Indian citizen. NRIs are not eligible to invest in NSC.
  • There is no minimum or maximum age for an individual to invest in NSC. You can even invest in this scheme on behalf of a minor.
  • Public and private limited companies, trusts and Hindu Undivided Families cannot invest in this scheme.

How Should Someone Invest in NSC?

Previously, one could invest in the National Savings Certificate scheme by purchasing a physical copy of NSC certificates. However, this practice was discontinued in 2016. Today, you can buy these certificates in electronic mode or passbook mode.

NSC investment via the passbook mode is tedious and time-consuming. Instead, you can invest in this scheme using a savings account in any post office near your location or an authorised bank. To purchase NSC certificates using e-mode, you must ensure that your savings account has access to internet banking.

What Documents Are Required to Invest in NSC?

To buy a National Savings Certificate from a post office, you must present the following documents:

  • Photograph
  • Identity proof like PAN, passport, senior citizen ID, Driver's License, or any other government-authorised identification document
  • Address proof like bank statements, phone bills, passport and electricity bills

What Are the Features of the National Savings Certificate?

Know the features of the National Savings Certificate below:

  • Fixed Income:

    National Savings Certificate provides guaranteed fixed returns throughout the tenure. The interest in this scheme does not rise or fall with market movements. The returns from NSC are usually higher than FDs for the given period.

  • Interest Rate:

    The government of India sets and revises the interest rate for National Savings Certificates every quarter. The current interest rate is 7.7% p.a. as of 10/10/2023. The interest accumulated is reinvested and paid at the end of the 5th year.

  • Minimum and Maximum Amount:

     You can make a minimum deposit of Rs. 1,000 into an NSC and invest in multiples of Rs. 100 after that. There is no maximum limit nor a limit on the number of deposits.

  • Premature Withdrawal:

    NSC investments do not allow any premature withdrawal of funds. Once you invest in this scheme, you can withdraw the amount only after the end of the lock-in period. However, for exceptional cases like the death of an investor or a court order, the post office might accept your premature withdrawal request.

  • Maturity Period:

    The maturity period for NSC investment is 5 years.

  • Types:

    Two types of National Savings Certificates used to be available- NSC VIII Issue and NSC IX Issue. However, the Government of India discontinued the latter in December 2015.

  • Tax Saver:

     National Savings Certificate is a government-backed scheme. Hence, by investing here, you can claim a tax deduction up to Rs. 1.5 lakh under Section 80C of the Income Tax Act.

  • Maturity Amount:

     At the end of your investment tenure, you will receive the complete maturity amount. There are no TDS charges applicable on NSC returns. However, as an investor, you would need to pay the applicable tax on the amount.  

What Are the Advantages of the National Savings Certificate?

The points below will take you through the advantages of investing in a National Savings Certificate for your finances.

  • Accessibility

    You can invest in a National Savings Certificate easily by submitting your documents to any post office or authorised bank. The application process is quite easy and you can complete it online by submitting a few KYC documents.
    Furthermore, you can conveniently transfer your NSC account from one post office to another. You can also transfer the ownership of this certificate from yourself to another person without much hassle when necessary.

  • Feasibility of Investment

    National Savings Certificate allows you to start your investment journey with an amount as low as Rs. 1,000. There is no maximum limit set by the Government towards this scheme. You can invest as much money as you want as per your convenience, budget and risk appetite without worrying about losses.

  • Nomination Facility

    An investor can nominate any family member regardless of their age to inherit the returns of this scheme after maturity. This facility is of great help for investors’ family members to sustain in case of their demise owing to any long-term illness.

  • Loan Collateral

    Most banks and NBFCs accept NSC certificates as collateral or security deposits if an investor is opting for a secured loan. In such instances, banks or post offices attach a transfer stamp to this certificate and transfer it to the bank or NBFC which will disburse the loan.

What Are the Tax Benefits Provided by National Savings Certificates?

As you already know, there is no upper limit for the NSC Investment. However, only investments up to Rs. 1.5 lakhs are eligible for tax deductions under Section 80C of the Income Tax Act. Unlike some other tax-saving investments, there's no tax liability for the first four years of investing.

The interest which you would gain during the first four years of your NSC investment is considered to be reinvested into your initial amount. Thus, it becomes eligible for tax benefit, given it falls under the maximum limit of Rs. 1.5 lakh. On this note, the interest which you will earn in the fifth year will not be reinvested. This will be taxed according to your applicable tax slab.

What Is the Maturity Period and Premature Withdrawal Rules for NSC?

The maturity period for a National Savings Certificate is fixed at 5 years. You cannot opt for early withdrawals before the maturity period ends. Your investment amount will accumulate interest based on the fixed interest rate which you will receive at the time of purchase.

However, banks or post offices might approve requests for premature withdrawal of NSC amount in exceptional cases. These instances might include the death of an investor or a court order.

Now that you know what the National Savings Certificate is and its benefits for your portfolio, you can plan your investment accordingly. As the maturity period for this scheme is just five years, these are ideal for conservative investors looking for a short-term investment. So, if you are looking for an investment option offering higher returns than a typical FD, you can invest in NSC.

Alternative option to invest

If you are looking for investment opportunities that can help you with guaranteed returns then you can definitely evaluate life insurance savings plan. This type of financial instrument can help you build your corpus as well as provide life cover. Savings plan can help you fulfil your financial goals as well as secure your financial future.

FAQs about National Savings Certificate

Q1. What is the National Savings Certificate?

National Savings Certificate is a government-backed investment scheme suitable for low-risk investors as it offers guaranteed returns and tax benefits. NSC investments carry fixed interest rates and a 5-year lock-in period. Investments in an NSC allows you to avail tax deductions of up to Rs. 1,50,000/year u/s 80C.

Q2. Is NSC better than FD?

As an investor, your risk appetite, investment goals and budget will help you determine which option suits you better National Savings Certificate. The returns of NSC investments are guaranteed by the Indian Government, while FDs are insured by DICGC. NSC also offers slightly higher interest rates than FDs with similar tenures. However, premature withdrawal is not allowed.

  Q3. What is the rate of interest in NSC?

The current interest rate for the National Savings Certificate is 7.7% for the October to December 2023 quarter. The Ministry of Finance reviews the interest rate and it is subject to change every quarter.

  Q4. How much will I get in NSC after 5 years?

Consider that you’ve made an investment of Rs. 1,000 towards a National Savings Certificate for five years with an interest rate of 7.7% p.a. After maturity, your total earnings will be Rs. 1,449 and a total interest of Rs. 449 will be added to your investment amount.

Q5. How to open an NSC account with the Post Office?

To open an NSC account online, log in to the official portal of India Post and go to the "Services" tab under General Services. In this tab, choose "New Requests" and click on "NSC Account- Open NSC account". Here, enter the investment amount and link a savings account to start investing. You can also visit a Post Office branch to start investing. 

Trusted sources:

https://economictimes.indiatimes.com/wealth/save/what-is-the-national-savings-certificate-nsc-interest-rate-for-october-december-2023-quarter/articleshow/104417918.cms

https://www.wintwealth.com/blog/nsc-in-post-office-features-interest-rates-and-account-opening-process/

https://www.indiapost.gov.in/Financial/pages/content/post-office-saving-schemes.aspx

https://economictimes.indiatimes.com/wealth/save/7-faqs-answered-on-national-savings-certificate/what-is-nsc/slideshow/92868681.cms

ARN: ED/12/23/6653

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Francis Rodrigues Francis Rodrigues

Francis Rodrigues has a decade long experience in the insurance sector, and as SVP, E-Commerce and Digital Marketing, HDFC Life, manages the online sales channel, as well as digital and performance marketing. He has had hands-on experience in setting up sales channels and functional teams from scratch over a career spanning 2 decades.

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Vishal Subharwal heads the Strategy, Marketing, E-Commerce, Digital Business & Sustainability initiatives at HDFC Life. He is responsible for crafting and ensuring successful implementation of the overall organisation strategy.

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